How the government rip you off with hidden taxes when you go shopping

December 19th, 2010

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In Australia, one of the major secular trends that is happening is the growth of online shopping. More and more consumers are discovering the joys of bargain hunting through the Internet, thereby bypassing the traditional bricks-and-mortars retailers in the local shopping malls.

One of the pet complaints by Australian retail businesses is that they are unfairly burdened by the need to pay GST. Australian consumers avoid GST by buying from overseas web site. Worse still, the strong Australian dollar makes overseas products even cheaper.

So, is GST really the root of the problem for Australian retailers who find themselves increasingly unable to compete with foreign web sites?

Well, let’s hold a thought experiment. Imagine that all the goods at your local retailers are reduced by 10% (which is the GST amount). Will that make your local retailers more competitive than their overseas online competitors? Will that make you switch from buying from overseas web site to your local retailer? If the answer is “No,” then it means that we have a structural problem in Australia.

For one, consumers are complaining that the range of products sold by our local retailers are too small. In other words, they can’t get what they want locally and therefore, have to shop in foreign web sites to get them.

More importantly, many goods sold by foreign web sites are very much cheaper than identical ones sold at your local shopping mall, even after you include shipping costs. For example, when you compare the prices at your local Dymocks bookshop and Book Depository, you will find that the latter is much cheaper (by the way, if you shop at Book Depository through our link, you will help us and help yourself financially). That means that even if the government can somehow enforce GST on foreign online retailers, our local retailers will still bleed.

So, if you accept the theory that this is a structural problem, what could it be? Recently, we found this very interesting comment that may possibly answer this question,

How can local retailers compete with overseas retailers when their operating cost here are significantly higher than overseas. The biggest single cost, after labour, is commercial and retail rents, which are at least 50% higher here than overseas … this is reflected in the price of the goods.

The enquiry should centre around why retail rents have skyrocketed in Australia, and why the institutional property owners force retailers and small business to pay extremely high rents. Try starting a small business here when you have to pay $200- $400 per sq metre in suburban Sydney, yet in the US, the same premises rent out for $50 – $150 per sq metre.

The Government is complicit in that it has a vested interest for property values to be as high as possible to ensure the land tax revenues keep coming in … Australians are being taxes artificially at all levels in the community .. from the goods they buy to the cost of electricity .. behind all of these costs are hidden government fees.

So, this is another example of unintended consequences of the property bubble in Australia.

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  • PomSTeve

    A book that my daughter wanted was AU$46 in Oz, but only GBP2.50 in UK. Even adding air mail postage she made a considerable saving by sending it to me in the UK, and me posting it on.
    In my local supermarket in UK I can buy Australian produce cheaper than in Coles or Woolworths in Sydney.
    The Aussies are being ripped off and they are not objecting to it!

  • Pete

    Wow great article CIJ.

    It’s interesting isn’t it. In the US they have almost everything much cheaper than we do here.

    What rubs even more salt into the wound is when you find Australian products listed overseas cheaper than they are sold locally! (as PomSTeve said) I’ve seen it a few times.

    In my local mall (Westfields), the ‘food court’ or fast food area sells food for high prices, for low quality products. I don’t think they want to sell so high, they are just forced into it as they need to cover their shopfront rent.

    And not intending to be racist, but I very much notice that the majority of the food shops, regardless of what they sell, are managed and operated by asians. I suspect this is because they operate family businesses with family wages. Out of 10 shops, 9 would be operated by asians.

    And it is so hard to find reasonably priced healthy food there too. I suspect it is for similar reasons.

    We do have a problem here. Retail is one problem, and grocery/supermarkets is the other (Coles/Woolworths price gouging).

  • Pete, what’s going on with Coles/Wooleys?

  • I’d order more computer equipment and electronics from overseas too buy there are sometimes restrictions on delivery to Australia.

    Lately, we notice some credit card providers in Australia are giving consumers a new service- a forwarding service whereby the consumer is given an address in US/UK in which goods that they purchase will be forwarded from that address to their Australian address.

    It seems like these intermediary services are springing up like mushrooms.

  • Wow, that would be great. Which ones are they?

    My wife used an intermediary recommended on Whirpool but it was scary ’cause it was a bank transfer just over $1000.

  • Pete

    I’ve seen them too.

    It’s pretty handy, especially if the store you want to shop from does not ship internationally, OR if they do not ship with your preferred shipping provider (wg, USPS is pretty expensive and slow).

    I haven’t used one myself, but I have seen a few.

  • Pete

    Just the regular price gouging/anti-competitive stuff as usual. They price out the small guys and use their size to make things even harder (eg, having special arrangements with suppliers that the smaller guys can’t get).

    They do make a lot of profit.

    What bugs me the most is the cost of fruit and vegetables (and quality). They are capitalising on a continuing trend where people are too busy to shop around and go to markets…especially with children and two parents working long hours.

    We’ll turn into America… everything processed and packaged, and good food expensive or harder to come by. It’s sad.

  • everything processed and packaged, and good food expensive or harder to come by

    Processed food is also not that unhealthy, with the nutrients stripped away. Arguably, the rise in cancer is attributed to increased consumption of processed food.

  • Yes Pete, always promising myself to get to this market or that market but unfortunately, it never happens. Our actions do allow the supermarkets to perpetuate higher prices. Perhaps you’re right though – with the rise of dual income families and other distractions – we’ll all so time-poor that it feeds into the hand of the big companies that make conveniences for us all. Perhaps the only other viable option is a tree/sea change … I looked at a tree change recently but the house/land prices make it impossible currently :(.

  • lol, not unhealthy but causes cancer?

  • Tah

  • Pete

    A typo me thinks. Accidental double negative 🙂

  • Pete

    Yeah I considered the same.

    If you have a garden on the other hand, and spare time on a weekend, you can grow your own. But it comes down to time again. I think eventually it will become more viable to have single income families again…if one adult works in the garden, prepares the food and negates the need for childcare, you could save loads of money… and ultimately a decent portion of our money goes to pay for food anyway.

    Self-sufficiency has always had some allure for me – getting away from the volatility and uncertainty of the inflation genie.

  • Oops, Pete is right. Typo error.

  • You reckon it is worthwhile to start a self-sufficiency community web site that includes forums and blog?

  • Pete

    Possibly, and if there was a decent amount of participation it would be quite good.

    Problem for me is that I am in no position to utilise any of it, and i’m not sure what I could contribute.